Refer to the information provided in Scenario 25.1 below to answer the question(s) that follow.
SCENARIO 25.1: The following table shows the changes in deposits, reserves, and loans of 4 banks as a result of a $100,000 initial deposit in Bank No. 1. Assume all banks are loaned up.
-Refer to Scenario 25.1. Based on the initial $100,000 deposit, the money supply will, at most, expand to

Question

Refer to the information provided in Scenario 25.1 below to answer the question(s) that follow.
SCENARIO 25.1: The following table shows the changes in deposits, reserves, and loans of 4 banks as a result of a $100,000 initial deposit in Bank No. 1. Assume all banks are loaned up. 
-Refer to Scenario 25.1. Based on the initial $100,000 deposit, the money supply will, at most, expand to

Quizplus · Accepted Answer

The money multiplier for each bank can be calculated by dividing the total deposits by the initial deposit of $100,000. Bank No. 1 has a multiplier of 1 (since the initial deposit is in this bank), Bank No. 2 has a multiplier of 0.8, Bank No. 3 has a multiplier of 0.64, and Bank No. 4 has a multiplier of 0.512. The maximum expansion of the money supply will occur when all banks loan out their maximum amount based on their reserve requirement. This will result in a total money supply of $2 million (100,000 x 1/0.2). Therefore, the correct answer is B.

Refer to the Information Provided in Scenario 25